Gaining a macro perspective about Bitcoin and knowing what you should pay attention to.
Your understanding of the big picture when considering jumping on the investor train of the crypto market is key to making the right decision. I have done careful research to help you understand the key drivers of the Bitcoin market and invariably the cryptocurrency market as a whole.
Why I singled out Bitcoin is because most cryptocurrencies tend to mirror the path of the crypto king and go where it goes.
Bitcoin and Macroeconomic Events
As a global, decentralized currency, Bitcoin is sure to be affected by macroeconomic events and happenings in all countries where it is used. These events, in some way, affect the demand for Bitcoin.
Let’s look at instances where there’s prevalent economic growth and expansion leading to wealth accumulation in a country. Individuals may prefer to allocate some of their investments to Bitcoin as an alternative asset.
But in a scenario where the opposite is the case or there’s a perceived risk to investing in this crypto asset class, you can agree with me that the demand would not be great and hence, there would not be an increase in price.
There are other cases where certain alternative currencies may be more appealing than Bitcoin and may offer a presumed higher return when invested in. This may lead investors away from Bitcoin. Also, when a local currency is presumed to be volatile or less valuable, individuals may find Bitcoin more appealing.
Understanding the different global scenarios that could play out in Bitcoin is very important. It calls for a careful follow-up of every possible factor that could affect the demand and supply of this currency, as it will determine the profitability of your investment.
The Bitcoin Halving
The halving of Bitcoin has been a key influence on the price of Bitcoin over the past year. What really is Bitcoin halving and how does it impact the price of the cryptocurrency?
Simply put, a Bitcoin halving is an event where the rewards miners get from mining Bitcoin are split in two. This reduces the amount of Bitcoin available in circulation and, as a ripple effect, increases demand. Remember that when there’s a curb in supply, it means inflation is controlled and hence prices increase.
Why is this important to pay attention to?
The halving is designed to occur every four years until 2140, when Bitcoin is expected to have reached its 21 million hard caps and the next halving happens to be next year, in 2024.
From past historical events since the inception of the first halving on November 28, 2012, the price of the cryptocurrency has experienced a spike, so we can say that we can expect a rise in the price of Bitcoin once the next halving is done in 2024.
Bitcoin and the Dollar Index
In times of inflation, more money buys fewer goods. This may not be good for local currencies as investors seek a better store of value. Like gold, Bitcoin could be an alternative investment asset. Due to the fact that Bitcoin has a preprogrammed hard cap of 21 million coins, supply is regulated, as is inflation.
The major cause of inflation is too much supply of fiat currency, which puts more money in the hands of individuals and increases their demand for goods. When there’s an increase in demand, there will be an increase in the prices of goods and services, creating inflation.
The performance of the dollar index, especially when it has to do with the inflationary reading of the US economy, has a lot to do with the demand for Bitcoin, as investors will consider the crypto king a safe haven in times of rising inflation, thereby increasing the price of Bitcoin.
Paying attention to the happenings that affect the greenback is key to making a wise crypto investment.
Government Regulation
In recent times, we have seen the effect of government attacks on or support for the use of Bitcoin and how that has affected its price in some ways.
Although no government can control Bitcoin, it can make it difficult for citizens to use it. Some case studies are China, Turkey, and Nigeria, where their governments banned the use of Bitcoin due to their fear that citizens would gradually abandon the local fiat currency for the decentralized one. The ban did not stop people from using Bitcoin but made it difficult, which affected its price.
On the flip side, we have seen the governments of countries like Brazil and Canada encourage the use of Bitcoin amongst their citizens by authorizing Bitcoin ETF trading in their marketplaces. Also, we see El Salvador accepting Bitcoin as legal tender which helped to spike the crypto’s price. Hopefully, the United States is expected to mirror this path in the coming years.
Summing Up
Bitcoin is a very volatile currency. Several factors affect its price, ranging from demand and supply factors to news releases from key players like Tesla or the Bitcoin blockchain. One news release can drive prices up or down.
To that end, it’s essential you keep abreast of recent news and happenings that relate to this cryptocurrency before making any investment decision.
